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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

In theory, market risk should be the only “relevant” risk. However, companies focus as much on stand-alone risk as on market risk. What are the reasons for the focus on stand-alone risk?

Summary Introduction

To identify: The reason for the focus on stand-alone risk.

Introduction:

Market Risk:

Beta risk is a systematic risk that can be reduced through a diversified portfolio or investment projects. It is based on the market related and known as market risk.

Stand-Alone Risk:

Stand-alone risk is based on the assumption that only one project is available with the company and the single stock is available for the investors. Therefore, the stand-alone risk cannot be diversified.

Explanation
  • The risk analysis for project is required to get the actual estimates of future benefits and costs...

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